VOD: Getting Bigger, But Not Better Yet

Apr 23, 2007  •  Post A Comment

By all numerical accounts, video-on-demand had a good year in 2006. The number of consumers using VOD grew from 50 percent to 60 percent of digital subscribers, Comcast alone delivered 1.9 billion VOD sessions — up from 1.4 billion the year before — and programmers increasingly found ways to monetize the market, with Turner, for example, doubling its VOD ad revenue.

But those sorts of numbers only tell part of the story. Despite the success that networks are finding in growing this new business, and despite the increase in consumer acceptance and usage, VOD has taken a back seat for most broadcast and cable networks.

The reasons for this are many. For starters, Web video is hot, it’s sexy and it’s where the action is. Red-hot viral videos like “Saturday Night Live’s” “Dick in a Box” can corral more than 18 million views on YouTube.com and seep into the cultural lexicon to the point where Justin Timberlake performs the song at a Madison Square Garden concert.

VOD doesn’t carry the same cachet. Consumers can’t send an e-mail to a friend and say, “Check out this show on VOD,” as they can with a viral video.

That’s partly because VOD hasn’t found its watershed moment yet, like “Dick in a Box” for viral video or the streaming of the NCAA Men’s Basketball Tournament last year for online video.

VOD still faces the same critical issues for long-term success that it did a year ago. Dynamic ad insertion that will let advertisers insert fresh ads on the fly into VOD content is not ubiquitous. Advertisers still must bake their ads into content several weeks before the program airs, which means they can only run evergreen-type ads. Also, advertisers are still clamoring for more metrics from operators. Finally, networks have yet to widely offer their top-tier programming on-demand.

CBS and NBC have placed hits such as “CSI” and “Heroes” on VOD, but such efforts have yet to become commonplace. However, virtually every broadcast and cable network offers its top-rated properties online via iTunes or on its own Web site.

No. 2, Trying Harder

The net result is a VOD business that, while steady, is playing second fiddle to online video, especially in mindshare. “Now that VOD is established, it’s not as exciting as all the new video stuff — but it’s actually being used,” said Bruce Leichtman, president of Leichtman Research Group. “Comcast alone had 1.9 billion on-demand sessions in 2006, but Apple’s 51.3 million [TV shows] and movies sold [on iPods] in 2006 get much more hype and attention.”

VOD is sitting on the same issues that have stymied its path to broad usage for the past few years.

“For VOD to reach the next level of vitality, we need to usher in wide-scale deployment of the twin game changers — dynamic insertion and a universally endorsed system of measurement,” said Clint Stinchcomb, executive VP of new media at Discovery. “We also need improved navigation and better ways to intelligently sift through the richness of choice available today.”

In some ways cable operators missed a window of opportunity about a year ago to make the set-top box the No. 1 conduit for sending ad-supported prime-time programming to the home. They focused at the time on amassing bulk in hours rather than grabbing the top shows for VOD. As a result, networks turned to online venues to distribute their shows and had good results. ABC, for instance, said its Web site has attracted more than 60 million episode starts for its ad-supported prime-time programs since September.

However, the opportunity is not lost forever because VOD already has a significant base with more than 25 million homes, said J.B. Perrette, president of NBC Universal Digital Distribution. “There is still a big opportunity for the highest-quality shows, the highest-rated shows, which is what people want to watch through the set-top box — and that would be a big win for the distribution industry,” he said. “They would begin to regain some of the traction.”

Despite the shortcomings on the ad-insertion front, VOD is generating ad dollars. With Turner more than doubling its VOD ad revenue in 2006, VOD has become part of any linear ad package, said Chris Pizzurro, VP of digital ad sales and marketing for Turner Broadcasting System. “In this upfront, the complement to any linear package that goes out the door is a digital package, and in there it has broadband, VOD, some mobile elements,” he said. “It’s kind of unsexy because the business has matured to the point that it’s part of the business.”

Part of that maturation includes more programming. At the start of the year, Turner augmented its VOD programming to include some of its top movies, such as “Spider-Man,” “My Best Friend’s Wedding” and “Men in Black” on TBS and “Air Force One,” Philadelphia” and “Ali” on TNT. The addition of that sort of fare can bolster VOD, Mr. Pizzurro said. Adding those programs to the lineup took time, though, because of more complicated rights negotiations with film studios, he said.

Making Progress

Other minor advances have been made in the past year in the area of metrics, Mr. Pizzurro said. Turner’s networks now measure how many viewers watched an on-demand show to completion in addition to the traditional metrics on unique impressions.

The medium also has welcomed a few new advertisers in the past year. Jen Soch, VP and group director for advanced TV at MediaVest, said she has recently guided some new brands into VOD. Kraft Foods, for instance, started advertising its macaroni-and-cheese product in VOD on TV Guide, Discovery, Scripps Networks and Turner. She also said cable operators made some progress to ensure that metrics are uniform across systems.

“The VOD outlook for the next year is positive, and as scale grows and as demand grows in totality, more agencies and more clients are paying attention,” Ms. Soch said.

Still, like others, she believes the industry is waiting for dynamic ad insertion. “That is when we see a big change in the marketplace,” she said. “That is when we can break out and allow VOD to work more like a linear program and bring new industries that can’t look at VOD right now, like promotional messaging.”

Growth also has been seen in the area of measurement in the past year. VOD measurement firm Rentrak grew its number of network partners to 40, up from 23, with PBS Kids Sprout, Havoc TV and A&E among the new networks to come on board.

Rentrak also added new features that let programmers track ad viewing on a second-by-second basis, said Ken Papagan, executive VP for corporate new-business development and strategic planning. Rentrak now gathers data from more than 50 percent of all VOD homes representing 73 percent of all VOD content.

In the coming year, VOD could benefit from consumer education. “Looking at digital cable VOD, it strikes me that content providers and system operators are making solid efforts at increasing the catalog of material available to prospective viewers,” said Paul Rule, president of VOD research firm Marquest Research.

“Simply promoting that a given program is available on demand is of little value unless consumers know how VOD works price-wise and how to use it. The feedback I’m getting from digital cable subs tells me that many are technophobic about trying to access VOD and are uncertain about pricing.”